If buying a home is one of your goals this year, we’ll tell you how to go from renter to homeowner. We’ll cover the factors you should consider before saving for a down payment and buying a home.
Factor #1: How Much to Save for a Down Payment?
To buy a home and receive favorable financing, it’s best to put down a 20% down payment on the house you purchase. It helps reduce your loan amount and remove private mortgage insurance lenders have to charge borrowers if they put down less than 20%.
To learn how much to save, researching the average down payment and home prices in the area you want to live in is a great first start. As your REALTOR® at Sage Wilson, we can also do a comparative market analysis when you do a Buyer’s Consultation with us. Once you have some numbers in mind, you can begin to work towards saving by asking yourself: how much do I need to save each month and how does that number compare to how much I’m able to save currently?
Factor #2: Assess Current Debts
To receive favorable financing with a mortgage lender, you need to lower your current debt first. Having less debt before applying for a loan will give you better rates on your mortgage. Consider paying off smaller debts like student loans, car loans, credit cards, or medical debt. Plus, paying off your debt will also improve your credit score, which will help you get a better rate for a mortgage.
Factor #3: Save for More Than Just the Down Payment
Besides saving for a down payment, you’ll also need to save for emergencies, for yourself and the home. As the pandemic has taught us, an emergency can happen at any time, and it’s best to be prepared beforehand. At any given time, you should have enough money saved to cover between 3 and 6 months worth of living expenses.
Factor #4: Consider Your Career
Another factor mortgage lenders look at is how long you’ve been at your current job. They need to know you have a steady income to pay off the large debt they’re giving you. So a job change could hurt your chances of good financing and favorable terms. Ask yourself how likely your job will change in the next few years? A job change will impact how much you save as your income changes too. Consider the day-to-day of your job, if you’re working remotely now and get a new job that works in an office, how will that impact your finances? You’ll have to pay for gas, child or pet care, and maybe eating out more. Or the reverse happens where you go from in-office to remote, then you’re able to save more money. All changes have an impact.
If you need help creating a plan to help save for a down payment as a renter, contact us!
